n Changes annual raises to pension benefits. A 3 percent compounded raise will still be given each year, but o...

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Main provisions of the pension reform plan

n Changes annual raises to pension benefits. A 3 percent compounded raise will still be given each year, but only on a certain amount of pension benefit. The formula is $1,000 times years of service for someone not covered by Social Security and $800 times years of service for someone covered by Social Security. A person not covered by Social Security who retired with 30 years of service would thus be eligible for a raise on $30,000 of pension benefits. The $1,000 and $800 amounts will change each year based on inflation.

n Employees hired before January 2011 will not receive any raises in certain years, depending on their age. Employees over age 50 will miss one raise, while those under age 43 will miss five raises.

n Pensions will on only be earned on salaries up to $109,971. That amount will be adjusted in future years by 3 percent or one-half the rate of inflation, whichever is less. Salaries already above that cap or which will exceed that cap based on a current collective bargaining agreement are grandfathered in.

n Workers aged 45 and younger will have to work longer to qualify for retirement benefits, based on a sliding scale. For each year a person is younger than 46, the retirement age increases by four months, up to a total of five years.

n The state will use money now spent to repay pension bonds to pay down pension debt once the bonds are repaid. That means an extra $364 million in the 2019 budget year and $1 billion annually after that. Also, the state will use 10 percent of the annual savings from pension reform to help eliminate the debt.

n Employee contributions to pensions will be reduced by 1 percentage point.

n Creates an optional 401(k)-style defined contribution plan. Up to 5 percent of active workers hired before January 2011 would be allowed to join.

After years of trying, Illinois lawmakers Tuesday finally approved a pension reform plan that is estimate to save the state $160 billion over the next 30 years.

However, it could be months before the state knows for sure if the bill’s passage will withstand a court challenge. It won’t go into effect until June 1, but public employee unions have vowed to sue to have the law overturned because they feel it is an unconstitutional reduction in pension benefits. The case will eventually be decided by the Illinois Supreme Court.

Gov. Pat Quinn, who says he was put on earth to deal with the pension crisis, said late Tuesday afternoon he will sign the bill as soon as it reaches his desk.

“This was a bipartisan victory for the people of Illinois,” Quinn said at a Statehouse news conference. “I believe the legislation that was passed today is constitutional.”

Senate President John Cullerton, D-Chicago, isn’t so sure.

“I think the bill has serious constitutional problems, but now it’s in front of the court and they can decide,” Cullerton said.

After hours of debate, the Senate voted 30-24 to approve the plan. That is the minimum number of votes needed.

The House followed minutes later, voting 62-53 in favor of the bill, which needed at least 60 votes to pass there.

No easy vote

Sen. Bill Brady, R-Bloomington, who is a candidate for governor, was the only Springfield-area lawmaker to vote in favor of the reform plan. Brady said that without it, the state would have to spend 25 percent of its tax collections on pensions, which wouldn’t leave enough money to adequately cover the cost of needed state services.

“This is a budgetary problem and needs a budgetary solution,” Brady said. “We have to do that reluctantly by asking people to accept an alteration in the way their pensions grow. This isn’t an easy vote for anyone.”

“I believe taking positive action on this will forestall further (credit) downgrades and set us back on the path of financial recovery in this state,’ said Senate Minority Leader Christine Radogno, R-Lemont. “If someone is looking to preserve the status quo, which is financial chaos, you could find that excuse.”

A major component of the reform plan is to change the annual raises to pension benefits that are now set at a 3 percent compounded increase each year. The increases will continue, but on only a portion of retirees’ pensions.

The raises are called cost-of-living adjustments, which House Speaker Michael Madigan, D-Chicago, said is a misnomer.

“The 3 percent compounded pay increase in retirement is the furthest thing from a COLA because it bears no relationship to the cost of living,” Madigan said during a morning committee hearing on the bill. “It’s an automatic 3 percent compounded pay increase in retirement.”

Page 2 of 3 - Madigan, who has insisted that any reform plan include substantial savings to the state, said the state-funded pension plans had become too expensive.

“I think we all acknowledge the reason we are here today talking about this issue is that the Illinois pension systems are just too rich to afford as the state goes forward,” Madigan said. “Changes must be done.”

‘We call it theft’

The framework of the plan approved Tuesday was developed during weeks of negotiations in a bipartisan conference committee of lawmakers formed in June to work out a pension compromise. The four legislative leaders, including Madigan, Cullerton, Radogno and House Republican Leader Jim Durkin of Western Springs, hammered out the final version during talks over the last month.

“Our constituents want action,” Durkin said. “The winners of this will be the taxpayers of Illinois.”

“This bill is a well-thought-out, balanced response to the problem,” Madigan said. “It doesn’t just move in one direction. It doesn’t just cut benefits.”

Dan Montgomery, president of the Illinois Federation of Teachers, disagreed.

“We call it theft,” he said of the change in benefits that the union said is a contractual obligation to workers. “There is no victory in a bill that will be tied up in court. We feel it is blatantly unconstitutional. It will save no money at all.”

Ted Street, president of the Illinois Fraternal Order of Police, said the plan was simply a repackaged version of pension reforms Madigan unsuccessfully pushed during the spring session.

“This plan is not a compromise at all,” he said. “It makes it impossible for retirees to keep up with the cost of living. This is an extremely deep COLA cut.”

Unions also complained that they were excluded from talks when the leaders negotiated the plan this fall. They still support an approach they negotiated with Cullerton last spring that was approved in the Senate, but never called for a vote in the House. Madigan acknowledged Tuesday he was “severely criticized” for not calling the bill, but said it didn’t save enough money.

Madigan’s plan passed the House last spring, but got only 16 votes in the Senate. Cullerton said there is a difference between that earlier plan and what the Senate approved Tuesday.

“There’s $30 billion less cuts in people’s benefits in (Tuesday’s) bill,” he said. “I don’t think there’s one person who wanted to vote for this, (but) we had to get a bill in front of the court. That was motivation for some people to vote for it.”

Better than nothing?

Still, plenty of lawmakers found reasons to vote “no.”

Some, like Rep. Jeanne Ives, R-Wheaton, said it didn’t go far enough and that further cuts should be imposed. Rep. Mike Fortner, R-West Chicago, said he thought provisions in the bill intended to guarantee the state will make its pension payments are weak and can be side-stepped by legislators if they want. Rep. Dan Brady, R-Bloomington, complained that the bill doesn’t cover judges. The changes only affect downstate teachers, lawmakers, state workers and university employees.

Page 3 of 3 - Madigan said judges were excluded to eliminate a “judicial conflict” when the bill is challenged in court.

Others, while saying they didn’t like the bill, said it was better than nothing.

“This bill is not true reform, but it may be the best we can get at this time,” said Sen. Jim Oberweis, R-Sugar Grove.

“In many cases, I wish the bill did more,” said Rep. Ron Sandack, R-Downers Grove. “Is it realistic under current circumstances to have a better bill? I would suggest that is not the case.”